Payday loans facing challenges in state

Payday loans draw attacks from consumer groups, which say they have excessive fees.

By CHELYEN DAVIS

Date published: 12/1/2006

RICHMOND--An organization that opposes payday loan operations yesterday released a report that shows payday loans cost consumers more than $4 billion in excessive fees a year.

The report, issued by the Center for Responsible Lending, based in North Carolina, comes as Virginia legislators are scheduled to consider a bill that would outlaw payday loans altogether, along with one to impose additional regulations on the industry.

Payday loans are short-term loans, usually due within two weeks of the time they're taken out. Lenders impose fees on those loans that in some states exceed 300 percent, which means that people who take out such a loan often find themselves stuck in a cycle of taking out more loans just to cover the interest.

In the Fredericksburg area, the payday loan offices are located throughout main thoroughfares. Among those hit hard by the loan roller-overs are service members.

Earlier this year, officials at Quantico Marine Corps Base told of a Marine who rolled over a loan so often it grew to $14,000 in 18 months.

The CRL's study showed that 90 percent of payday loans go to people who take out five or more such loans a year, and 60 percent of loans go to those who take out 12 or more a year.

"Payday loans do indeed sink borrowers in debt that can be as difficult to escape as quicksand," said CRL President Michael Calhoun, during a telephone news conference outlining the report. "These repeat borrowers are far worse off for having taken out a payday loan. They end up paying back far more in interest than they originally borrowed."

Virginia began allowing payday lending in 2002, and in short order hundreds of payday loan businesses sprung up around the state. According to the report, as of 2005 there were 756 payday loan stores in Virginia. Borrowers had an average loan of $355, on which they paid an average fee of 14.8 percent--or 386 percent if averaged out over a year.

The high interest pushes people who are already having trouble making ends meet to take out a second loan to pay the first. Many fall into a cycle, taking out numerous loans just to pay the accumulating interest.

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Date published: 12/1/2006